The following is an overview of the buying process, in order for you to:

• Understand where you start and what you need to do
• Learn how the financial and Legal aspects of Home Buying work.
• What is your real estate consultant's role & what she/he could do for you?

Getting Started

 Before you begin the process of buying a home you need to determine the following:

1. What is your buying objectives?

Why do you want to buy a home? Need more room? Tired of paying rent for nothing in return? Downsizing?

2. What are your needs?

Prioritize what is most important to you in a home. Working with a knowledgeable real estate agent will help you with determining and prioritizing your needs and wants. Remember there is a difference between what you need and what you want.

3.Know What You Can Afford 

Before you start on your home buying search, you need to know how much home you can afford. So, it is very important that after initial consultation with your real estate agent you speak to a mortgage banker first. What could be more comforting than the peace of mind that goes with knowing how much you can afford and your mortgage is fully approved?  Determining this early in the buying process will save you a lot of time and frustration. Not only will you have a clear idea of the amount you can spend, but you can also eliminate all those homes that are not in your price range.

4. Get Your Financing in Order

This is not the time to make major purchases on a credit card. Don't change your type of work. Know your credit report and make sure it is accurate. Save Money.

Steps for Home Financing

1. Save Money- You need money for down payment, closing costs, moving expenses, and other related expenses. Try not to buy anything on credit and if you do, pay it off quickly.

2. Know your Credit Report- Make sure your credit report is accurate. If there are any issues or mistakes, try to clean up any problems or mistakes.

3. Get Pre-Approved for a Loan- It pays to be pre-Approved early in the process. Pre-approval gives you more power when you have finally found the right house.

What is Preapproval vs. Prequalification?

Preapproval- This is a true mortgage committment. A committment from the financial institution to finance your home and an indication of the total mortgage amount available to you.

Prequalification- This is not a full mortgage approval, but an estimate of what you can afford. When you prequalify for a mortgage, the lending institution collects basic information regarding your income, monthly debts, credit history and assets. Then they use this information to calculate an estimated mortgage amount.

You have a greatly improved negotiating position when you are preapproved for a mortgage. The preapproval letter lets the seller know they are negotiating with a serious buyer, and this gives you a tremendous amount of leverage in negotiation. A preapproved buyer can close on a property much more quickly; a major consideration for a motivated seller.

What Type of Loan is Right for You

There are many types of mortgages available, the largest types are Fixed and Adjustable rate mortgages, FHA and VA mortgages. Assumable and Balloon mortgages. Each has its own advantages.

Fixed rate Mortgage- This is one of the most popular methods of financing a home. The interest rate stays the same during the entire term of the loan. It is usually for 15 or 30 years. During the term of the loan the interest and principal portion of your monthly payment remain the same. Your payments are predictable and stable. However, the initial interest rates tend to be higher on a fixed rate mortgage than an adjustable rate loans.

Adjustable Rate Mortgage(ARM)- The interest rate on an adjustable rate mortgage is tied to a financial index, such as a treasury security,so your monthly payments can vary over the life of the loan; which is usually 25 to 30years. this type of morgage usually have a lifetime cap on the interest rate to protect the borrower. Usually, the initial payments are lower on ARMs to make it easier for the borrower to qualify. Some ARMs can be converted to fixed rate mortgages at specified times, usually within the first five years. When deciding whether an ARM is right for you, determine the following:

• Will you be able to afford higher mortgage payments if interest rates go up?
• How long do you plan to own this home?
• Will you be making other big purchases in the near future ( new car, college)?

FHA Mortgage- Loans through the Federal Housing Administration (FHA) help low to moderate income home buyers purchase homes with low down payments ( approximately 3%). These loans are usually assumable by the next qualified home owner when you sell your home, which is an added benefit when it comes time to sell.

VA Mortgage- Veteran Affairs (VA) loans provide the opportunity to buy a home with no down payment. They are offered up to a predetermined amount and are assumable by qualified buyers. To qualify for a VA loan, the veteran must be on active duty or have a discharge along with one of the following:

• 180 days active duty between September 16, 1940 and September 7, 1980
• 90 days service during a war ( Korean, Vietnam, Persian Gulf, etc.)
• Six years service in the National Guard

Assumable Mortgage- This is a loan that stays with the property. It is transferred to the qualified home buyer. This means considerable savings for the next buyer. It may include no points, no interest rate change and low closing costs. These types of mortgages are sometimes the most valuable part of a property.

Balloon Mortgage- The Balloon Mortgage has a fixed rate for a certain time frame, typically 7 years, followed by a " Balloon" payment requiring the entire home loan balance. Interest rates are generally lower than conventional loans. This kind of loan is suitable for people who plan to either sell the home, pay it off, or refinance before the Balloon Payment is due.

When choosing a mortgage, find out about: 

• The down payment that is required
• The interest rate and the annual percentage rate(APR)
• Standard Closing costs ( and any extra fee the lender may charge and why)

If you put less than 20% down on a loan, you are likely to pay Private Mortgage Insurance (PMI). PMI protects the lender against a loss in the event of default by the borrower. The PMI can be removed once you have paid 20% of the loan. To remove the PMI, the property must be appraised by a bank approved appraiser.

Documents you Need to Apply for a Mortgage- When you apply for a mortgage, you need to provide information about your income, expenses and other obligations. This information typically includes:

• W-2s for the last two years
• Federal tax returns for the last two years
• Two most recent pay stubs
• Last two months' bank statements
• Long term debt information such as credit cards, auto loans, installment debt, child support, alimony, etc.

Rapairing your Credit Problems- Many situations can happen to put blemishes on your credit. Some lenders will work with you to find a credit solution. They have special programs and financing options that allow you to get a mortgage with minor credit blemishes. However, it is very important to keep your credit report in good standing. Here are some helpful things you can do for your credit report:

• Make all your payments on time; avoid waiting until the last minute because a small problem could end up making you late. 
• Don’t max out on your credit cards; if possible keep the balance at less than 30% of your credit limit.  This will help you to get the best possible rate, and keep your credit cards manageable.
• Don’t carry a balance; it is a credit myth that carrying a balance will improve your credit. If you pay your cards off in full each month, you will avoid costly interest charges.
• Have at least two credit cards open; you don’t have to spend anything on them.   To banks this shows that you are a responsible consumer. Many banks require at least two open trade lines (credit cards) in order to qualify you for a mortgage. 
• Don’t open too many new accounts at once; this could hurt your credit score. It is considered abnormal behavior by credit agencies.  You should wait between 4-6 months before opening new credit cards.   
• Pay small fines, energy bills, medical bills, etc; the bill holder could sell off your debt to a collection company which may end up on your credit history as a collection.  Collections will hurt your credit substantially, so will court judgments that go unpaid.
• Limit the number of inquiries on your credit report; the credit agency will treat this as abnormal behavior. This is often a sign that you need more credit because you are in debt. During mortgage shopping, the advice is to limit the number of bank inquiries to no more than three; although your FICO score may not go down with a couple of inquiries, if you pull your score too many times it will go down.